Discipline tends to slip when times are good.
So when the Nebraska Economic Forecasting Advisory board raised its projections last month, the good news was not unalloyed.
Obviously it’s a positive development when existing tax rates bring in more revenue than expected.
And that was a sizable number -- $99 million for the current year and next -- that the board put up for grabs.
The trouble is, once the Legislature starts allocating the money to tax cuts and new spending, experience shows that it can be hard to stop.
It’s important to protect the state’s rainy day fund. That’s one of the items on the Journal Star editorial board’s agenda for 2014. Today we renew that call.
Nebraska’s rainy day fund, called the cash reserve, helped it to weather the Great Recession without as much distress as some other states.
During the recession the Legislature had to slash spending for schools and state programs, but it was able to preserve the tax cuts it put in place in 2007.
A useful benchmark is the recommendation from the Government Finance Officers Association, a national group, that state governments should keep two months of general operating revenue in reserve, or about 16.7 percent.
Although Nebraska went into the Great Recession in good shape with a rainy day fund of $578 million that amounted to almost 17 percent of its general fund, the OpenSky Policy Institute based in Lincoln made a good point last month that the state also got help from Washington in the form of stimulus funding.
“The state spent $792 million -- equivalent to 24 percent of the general fund -- in combined stimulus funds and cash reserve money to get through the recession,” wrote OpenSky staffer Chuck Brown.
With release of the Appropriation Committee’s preliminary budget this week -- which would dip $65 million from the rainy day fund for one-time expenditures -- state senators are about to commence serious discussion about state spending priorities and the proper amount to leave in the cash reserve.
A quick tally of the tax cuts and spending proposals pending in the Legislature shows they would dig too deeply into the cash reserve. The Appropriations Committee budget would leave $696 million in the cash reserve, just a hair below the 16.7 percent benchmark.
Senators should pay heed to a report, “Managing Uncertainty,” released last month by the Pew Center on States on the volatility of state tax revenues.
“No one knows what the coming years will bring, with the economy continuing to be difficult to predict,” the report states. “Policymakers have limited influence over states’ unique business cycles and the resulting changes in tax revenue, and even less control over other volatility drivers such as natural disasters.”
As they discuss budget issues, state senators should remember the lessons of history. The Legislature should err on the conservative side, and that means keeping a healthy balance in the rainy day fund.